Borrowers Risking ‘Mortgage High Wire’

Potential first-time buyers are taking an increasing number of financial risks in an attempt to get on to the property ladder.

The announcement comes as new figures released by LV= show that one in six (15 per cent) of adults under the age of 35 are willing to take on a mortgage worth at least four times their annual salary. Young buyers’ readiness to “borrow big” was again highlighted as five per cent of the under-35s are said to be prepared to opt for a deal worth more than five times their annual earnings. However, some 30 per cent of these consumers claim that they would forfeit taking out financial protection insurance for their secured loan deal to allow them to borrow the largest amount possible. Consequently, the financial services firm urged those buyers who plan on not paying for cover to consider how they would be able to make monthly mortgage payments should they unexpectedly become the victim of a long-term illness or injury which could cause them to be unable to work.

Nigel Snell, communications director for LV=, said: “Home-owning has long been a national passion and one which continues to cascade down the generations; but what concerns us is just how many younger buyers are prepared to stretch themselves well beyond traditional lending limits without arranging adequate financial protection. These were hypothetical responses and we fear that, under genuine pressure to realise their home-buying dreams, many more buyers will choose to walk the mortgage high wire without a financial safety net.”

However, Britons were said to impose limits on how much they were prepared to borrow for a mortgage. The financial services firm reported that 87 per cent of consumers would curb their borrowing to an amount which is no more than quadruple their salary. Meanwhile, some 58 per cent of borrowers claimed that three times their annual income was the most they were prepared to take out in a secured loan.

The study also revealed that borrowers from Northern Ireland are the most cautious throughout the country in terms of safeguarding their ability to make mortgage repayments. Some 44 per cent of consumers from the principality said that they would take income protection cover, with residents in East Anglia (38 per cent) and Yorkshire (32 per cent) also reported to be looking to secure their monthly expenditure. Conversely, people from the south-east of England were reported to be the least likely to take out insurance.

Meanwhile, 21 per cent of women claimed that they would rule out getting secured loan cover, in comparison to 27 per cent of men. Figures from LV= also indicated 11 per cent of females would opt for a mortgage above four times their salary, with this rising to 15 among the opposite sex. “A looser set of borrowing habits is taking root among younger generations of home-buyers. We understand the pressures and realities of today’s housing market, but we urge young families and individuals to think very carefully before deciding to omit financial protection from their home-buying process,” Mr Snell added.

Earlier this month, research conducted by Moore Blatch suggested that consumers are increasingly struggling with making mortgage repayments. The announcement comes as the firm suggests that as borrowers’ homes are being repossessed when they are unable to pay off secured loans, an equal number of Britons are selling off their property in an attempt to avoid increased financial difficulties in later life.

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